James F. Mahoney, Attorney

January 2013

You Were Warned: Workers' Comp Rates Are Rising

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I apologize, but didn't I warn you long ago that this was going to happen?

This is not an "I told you so." It's a call to go forward with careful planning and consideration of your most costly of all insurance coverages. And to think about switching some company drivers into owner-operators.

Beginning January 1, 2013, employers with less-than-fantastic loss histories started paying higher workers' compensation premiums.

At the core of the change is the method by which the e-mod rating is calculated. The biggest group affected will be medium-sized businesses, i.e., those that actually qualify for an e-mod but who nonetheless run drivers as employees.

If you don't have a very strong and diligent internal risk management and safety program that helps avoid and control claims (e.g., a safety guy to change dangerous behaviors and a vigorous return-to-work program), you could see rates go up by as much as 100%. Your alternatives include: more owner-operators; a PEO; a captive insurer of your very own.

Increase in the Split Point

The National Council on Compensation Insurance (NCCI) is the nation’s most comprehensive source of workers' compensation insurance data. It analyzes trends and devises "objective" insurance rates and loss cost recommendations.

2013, NCCI is increasing the "split point" calculation from $5,000 to $ 10,000. In 2014 it increases to $13,500, and in 2015 it goes up to $15,000. A workers' compensation claim that is paid up to the "split point" is known as a "primary loss" and reflects the frequency of such claims. The amount of the loss after the "split point" is referred to as "excess loss" and reflects severity.

In calculating the e-mod, primary losses are weighted more than excess losses. This shows that frequency of losses is a stronger indicator of safety than the errant severe loss.

The biggest impact from the new split point calculation - and for premium - will be on the pricing of those high-frequency, low-severity claims. Strange, isn't it? You would expect to be penalized for severe losses (you are, just in a different way).

With the average claim cost increasing by about 300% since the "split point" was last updated some 20 years ago (I read about this in a history book), the NCCI (and its friendly subscribing insurers) says the change is long overdue and restores a better balance of frequency and severity.

So what should you as a trucking business owner focus on?


Prevent or mitigate high-frequency, low-severity claims, such as sore ankles, pulled muscles, nicks and cuts, non-severe whiplash, and other minor injuries by implementing a rigorous return-to-work program. You can also avoid reporting "first aid only" claims, if you know the definition thereof.

There are also advantages to utilizing proper personal protection gear; in safety training and retraining drivers; in having someone perform risk analysis (insurers do this for free - check your desk drawer for last year's report); and implementing more "accurate" loss reporting / loss control systems.

Truckers who can should think about increasing their asset-light fleet by utilizing owner-operators as capacity providers. If you don't know this already, call me and I will yell at you for five minutes and then we can discuss how to develop this part of your business.